Risk of Business Insolvency during Coronavirus Crisis

Friesenhahn, Sophia M.; Kwan, Simon H.

Journal Article

Risk of Business Insolvency during Coronavirus Crisis

Abstract: Many businesses had amassed high levels of debt, or leverage, before the COVID-19 pandemic. Out of precaution or necessity, firms increased their borrowing further after the onset. Although the shock to those firms’ value significantly increased their risk, measured by their distance-to-default, the default risk remains relatively small for most corporate debt. Nevertheless, the amount of outstanding liabilities among firms with elevated risk of insolvency is more than two times higher than at the peak of the global financial crisis.

Keywords: covid-19; risk; Global financial crisis; debt;